In general, retirement income plans are strategies that can extract retirement income in an efficient way from one's savings in combination with income from existing sources (if any) so that, to the extent possible, expenses in retirement are covered throughout one's retirement. Efficiency here can refer to increasing the amount of income paid by a given asset amount invested, reducing the asset amount invested to produce a given income amount, reducing taxes, taking into consideration the major risks of retirement such as longevity risk, asset allocation risk, inflation risk, withdrawal rate risk, and healthcare risk. As such, retirement income plans are complicated to create. A retirement income plan can be personalized to the retiree's needs and able to meet their financial goals, easy to understand, set up and maintain, and provide confidence that the income the plan generates will last throughout the retiree's retirement. While saving for retirement is an ongoing financial goal for individuals, retirement income plans become more important as an individual approaches retirement. For many retirees, Social Security, pensions and other guaranteed income sources may not provide enough income to fully cover their expenses in retirement, so they may have to rely on their savings to cover any shortages of income.
Part of the challenge is that developing an actionable and effective retirement income plan is a complex activity that requires balancing a retiree's financial means, his/her income needs in retirement and his/her investment preferences. The average retiree may not be knowledgeable about the features of financial products that can be used to produce income in retirement, and thus most retirees need assistance navigating the retirement income landscape.
Advisors face their own set of challenges. The planning process today can include a lot of guesswork and may not be free of an individual advisor's biases. The calculations that are required to create an income plan are complicated, highly manual, and often include “rule of thumb” and other shortcuts that may or may not be right for every individual retiree. As a result, because of lack of financial knowledge, it can be difficult for the average retiree to compare retirement income plans prepared by different advisors and choose the plan right for them.